Penalty under Income Tax Act 271(1)(b) set aside by ITAT Delhi

The ITAT Delhi set aside the Ld. CIT(A)'s orders and deleted the penalty imposed on the assessee under section 271(1)(b) of the Income Tax Act for non-compliance with a notice and questionnaire. The ITAT found that the assessee was not adequately granted a reasonable opportunity to respond within the given timeframe of 7 days for 36 questions. Citing precedents, the ITAT emphasized that penalties should not be imposed for technical breaches and overturned the penalty, considering the completion of assessment under section 143(3) as satisfactory compliance.

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Issues:
Challenge to penalty u/s. 271(1)(b) of the Income Tax Act for non-compliance of notice u/s. 142(1) and questionnaire - Adequacy of opportunity granted to the assessee.

Analysis:
The appeals before the ITAT Delhi were against the order of the Ld. CIT(A) for assessment years 2005-06 to 2011-12, concerning the confirmation of penalty u/s. 271(1)(b) of the Income Tax Act. The main issue raised was the alleged lack of reasonable opportunity granted to the assessee during the assessment proceedings. The AO had imposed the penalty for non-compliance with a notice u/s. 142(1) and questionnaire issued on 19.11.2012, with the case scheduled for 26.11.2012. The Ld. CIT(A) upheld the penalty, leading to the assessee's appeal before the ITAT.

During the proceedings, the assessee argued that the AO had provided inadequate time for compliance, merely giving a 7-day notice and seeking responses on 36 issues. The counsel referred to a Tribunal decision where subsequent compliance was considered good compliance, and penalties were not imposed for such defaults. The DR, however, supported the Ld. CIT(A)'s order.

The ITAT, after considering the submissions and records, noted that the AO had asked for explanations on 36 questions but allowed only 7 days for response, deeming it an inadequate opportunity. Citing a previous case, the ITAT highlighted that insufficient time for compliance cannot justify penalty imposition under section 271(1)(b). Additionally, the completion of assessment under section 143(3) implied that subsequent compliance was considered satisfactory. Referring to a Supreme Court decision in Hindustan Steel vs. State of Orissa, the ITAT emphasized that penalties should not be imposed for technical breaches or bonafide beliefs.

Consequently, the ITAT set aside the Ld. CIT(A)'s orders and deleted the penalty levied on the assessee. All appeals filed by the assessee were allowed, and the decision was pronounced in open court on 30/1/2014.

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